HMRC has today published its latest update on flexible payments from pensions.
574,000 withdrawals were made by 264,000 people in quarter 2 2018, with total withdrawals in this quarter exceeding £2.2 billion. Since pension freedoms, 3.7 million withdrawals have been made by 1 million people, totalling £17.45 billion (April 2015 – June 2018).
Andrew Tully, pensions technical director, Canada Life commented: ‘A new norm has emerged for people to take cash, often with smaller pots being withdrawn fully. Many people are also making multiple withdrawals in a tax year, which suggests they are treating their pension more like a bank account. Most people are accessing their pensions at younger ages, certainly before state pension age.
'This combination of taking multiple withdrawals in a tax year at earlier ages when people are still likely to be earning income from work means many are likely to pay more tax than if they took withdrawals more gradually. Treating pensions like bank accounts has certainly generated a welcome windfall for the Treasury due to the extra tax take, which hasn’t been the natural brake some commentators predicted.
‘Our recent research suggests people are using the cash to make home improvements, go on holidays, pay off debts and also save the money outside of the pension wrapper.’
Click here to access a free tool to help people calculate the potential tax charge for pension withdrawals.
Research1 from Canada life sheds light on how consumers have reacted to the pension freedoms, and reveals one in five (19%) people have withdrawn cash from a sense of concern over the regulations changing.
43% of those polled who had used the freedoms to take some cash felt it was nice to have a bit extra to spend, while 36% said they needed the money.
Reasons for using the freedoms to withdraw cash include:
- 29% put the money in a savings account
- 25% used the money for home improvements
- 18% paid off non mortgage debt
- 17% went on holiday
- 14% paid themselves a regular income
- 12% bought a new car
- 11% paid off the mortgage
- 8% gifted some money to children
- 6% helped family members onto the property ladder
- 2% gave a gift to grandchildren
Click here to read the report.
- Source: Canada Life research conducted by Censuswide between 1.3.18 and 9.3.18. Online interviews among 1,000 people aged 55+ who have said they have used the flexible rules to access a pension.